A Complete Guide for Small Software Businesses to Starting Software Outsourcing Company in India

If someone’s been making you believe that starting a software outsourcing company in India is like learning the yogic posture of standing on your head, don’t believe them.

It’s way easier. More like learning to exhale and inhale to a count of ten. That’s if you do it the right way. Even small businesses can set up a software outsourcing company in India without much problem.

Making Contact

“But I don’t know anyone in India or maybe only a few people,” you might say. That’s no problem. Today, connecting to Indians for business is possibly the easiest than in any other Asian country. The best place to start is the Internet.

  • Social Networking – Twitter, LinkedIn and Facebook are some of the websites you should try. Set up an official account for your existing business. State clearly in your profile that you are looking for business partners. Don’t forget to put a photo. It just makes your profile more serious. You would be surprised how many people do actually respond.

  • Have a skype, msn or yahoo messenger in place for video conferencing. It’s more dependable and makes discussion easier apart from saving on your telephone bills.
  • Look up some freelancing websites like Elance, Freelancer and Guru. These often have projects listed for business partnerships across the world.
  • Talk to your friends and speak to Indians you might know. Check your existing business contacts.
  • Run a Google search for Indian business directories for example indiamart.com. Here you can go for specific keyword-based searches.

Building a relationship with your contacts

Whenever I think about outsourcing to India I am reminded of Vinay Katiyar. I have met him only twice but I can never forget him.

The first time I met him was at a business meeting. He was right up there being professional like any other MBA graduate from some of the best universities in America. The second time I met him was at an informal get-together at his place for a very Indian dinner. It was like meeting someone completely different.

He was patient through a four-hour traditional ritual, talked in Hindi with hardly any English and there was no computer in his house. Business with him, no way…that is unless you knew the ‘first’ Vinay Katiyar. Today, he happens to be my best friend’s most-trusted outsourcing partner in India.

So, keep your fears aside. It will take you a little time understanding how your partner works. Once you connect to a particular outsourcing vendor, establish a relationship with the decision-makers in the company.

Work with them for 6-12 months in attempts to understand how things are done. You need the experience before you set out on your own. Consider this a sort of a training period and you will soon become comfortable with Indian business practices.

It will help you if you also try to understand the Indian way of life somewhat. Indians are some of the most professional people in the world but become friendlier if you respect their traditions and way of life.

A surefire way of a successful relationship with a outsourcing company is to maintain a steady work flow. Nurture your business relationship as you would nurture a friendship.

Understanding the processes

When you work with an outsourcing vendor, your learning should not stop at allocating work and getting things done.

You must go a step further and understand the basic processes involved. For example, while working with an outsourcing vendor, try and figure out what exactly is the price mechanism and how it works.

Understand t1he mechanics of:

Their labor cost

Indian businesses are much more employee-friendly than those in the West. This helps them get the best out of their workforce and you will be surprised to see how low their labor costs often are.

This is not just about the dollar-rupee exchange rate. I know about this 10-member team that Vinay heads back in India for my friend James.

They are paid pretty well but they’re a young bunch that spent an entire weekend in office for the fun of it working on a problem and no one expected extra payment. It will take you at least a year to understand labor costs very typical in India.

Their overheads

Indian businesses focus a great deal on keeping overheads in check. Multi-tasking is the big buzzword in India. Depending upon the work, employees are willing to double up as both personal assistants and public relations personnel. This is one big asset for any Western business looking to outsource.

Their profits

Are usually easier to work out than in other countries in Asia or Europe.

Once you understand all these aspects you can then start by offering to take care of their monthly expenses for a short period of six months to begin with.

This will further help you get a practical experience of how outsourcing companies function.

Educating your partner

One thing you must always keep in mind is that your outsourcing partner should be aware of your deadlines and your requirements.

It is for you to educate him in understanding this. As much as you understand how the Indian system works you have to make effort to educate your business partner – in turn the staff – about how a delayed project can affect payments or end up you losing a valuable client.


The best way to integrate with an outsourcing vendor you have been working with is to eventually share your profit ratio.

For a new project be willing to discuss and evaluate labor costs, operational costs for specific durations, other overheads from both sides and then arrive at a profit-sharing deal.

Ask your outsourcing partner to give you a detailed analysis of every aspect of the project. Have several rounds of meeting before you can work out a proper deal.

This is sure to be a win-win situation because as a small business you don’t need to bother about the infrastructure.

All you need to do is focus upon local marketing and connect to your outsourcing company decision-makers. For them, you become their overseas office. It’s business sharing in a truly profitable way for all parties involved.

Holding in an Indian company

Once you’re ready for a profit-sharing model you need to known how foreign investment is possible in an Indian company.

Your outsourcing vendor would be able to help you with this. You can also check with a local attorney. Identify how a foreign company can invest in an Indian company

You can set up the following types of businesses in India:

  • Private Limited Company
  • Public Limited Company
  • Unlimited Company
  • Partnership
  • Sole Proprietorship

In addition to these legal entities, foreign investors/foreign companies interested in India can also go for::

  • Liaison Office
  • Representative Office
  • Project Office
  • Branch Office
  • Wholly owned Subsidiary Company
  • Joint Venture Company

You can choose to go for a direct holding in an Indian company or think about a joint venture once you have studied the profit ratio possibilities and evaluated that against your investing capacity.

Top Indian law firms have good free guides available online for understanding Indian business laws.

You can also ask your Indian business partner to help with all the mandatory Indian Government approvals that are required. These can also include – in some cases – approvals from the Foreign Investment Promotion Board and Reserve Bank of India.

Power of Attorney

To make things easier you must also appoint a Power of Attorney so that a trusted person could sign documents for you in India. After a company has been incorporated, you can always appoint Alternate Directors who will take care of decisions when you are not in India.

This will surely put you on track to a successful outsourcing business to India. Who knows you might even eventually learn those tricky yoga postures.

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